By Thapelo Moamogoe, Executive Head of Metals & Mining at Standard Bank Corporate and Investment Banking (CIB).

The mining sector in South Africa is a vital component of the economy, accounting for 6% of the nation's Gross Domestic Product (GDP) and significantly influencing economic stability and growth.

The influence on the GDP is complex and extensive, establishing it as a fundamental element of the country's economic structure.

South Africa stands out on the world stage with its rich deposits of manganese, chrome, platinum, gold, iron ore, and coal, making it a powerhouse in the production of mineral critical for the sustainable global economy.

Increased focus on Renewable Energy

Aligned with worldwide sustainability movements and South Africa's Just Energy Transition (JET) framework, we have seen many mining companies diversifying their energy sources to include renewable energy solutions. This diversification has a number of benefits for mining companies which includes decreasing carbon emissions (decarbonisation), cut electricity expenses, guarantee energy security, and flexibility.

The transition to renewable energy sources is clearly reflected in the notable rise in investments observed in recent years, driven by sustainable commitments.

In 2022, the mining sector experienced a significant surge in energy initiatives, with eighty-nine projects launched by Independent Power Producers (IPP) to produce 6.5GW of power for twenty-nine mining companies. This has been possible by the removal of the licencing threshold for private generation facilities. Among these initiatives, Solar accounted for 6.2GW, followed by Wind at 0.2GW, and Battery Storage at 84MW, while Biomass added 8MW. Whoever, the optimal approach is a mixture of technologies.

According to Operation Vulindlela’s latest progress update at present, an impressive total of 130 large-scale renewable energy initiatives done by IPP have been verified and are progressing through different phases of development, aimed at generating a substantial 22,500MW of power. This also reflects an impressive investment value of R390 billion. Remarkably, the mining sector will be an off taker for about 70% of these initiatives, amounting to ninety projects and a total capacity of nearly 15,800MW. This translates to approximately R275 billion in investment in the years ahead to future proof existing mining operations.

Several factors are driving mining companies to transition towards renewable energy sources:

1. Reducing carbon emission - Most of the mining companies have set themselves ambitious goals, aiming to reduce their Scope 1 and 2 emissions by as much as 30% by 2030. Including renewable energy in the energy mix helps mining companies accelerate reduction of carbon emission in their operations.
2. Financial Efficiency – Renewable energy sources like solar and wind have become more affordable than traditional tariffs. Prices are negotiated between the IPPs and private offtakers, in this case mining companies. The pricing is competitive and can be tailored to specific energy demands and provide certainty of future energy costs leading to lower operational expenses.
3. Investor & ESG demands – Worldwide investors prefer sustainable mining practices, urging companies to demonstrate reduction of carbon emissions by using sustainable production means including renewable energy.
4. Energy Security – Energy security is a critical concern for mining companies, given their heavy reliance on consistent and substantial power supplies to operate machinery, process materials, and maintain safety standards. Implementing a renewable energy mix that includes on-site solar, wind and battery storage initiatives can significantly improve energy security.
5. Flexibility –The mining companies are well positioned to benefit from the evolving regulatory and market structure in South Africa’s energy sector. The changes allow multiple generators to invest in new generation capacity to meet current and future projected demand, reducing the risk of reliance on a single supplier. This model will provide mining companies with the flexibility in terms of different suppliers, tariff and tenor of PPA.

The shift in the mining sector towards renewable energy is quickly accelerating, with a surge of solar, wind, and storage initiatives coming into view. We expect the market to shift away from a predominantly single supplier electricity market, towards the establishment of a competitive multi market structure where multiple electricity generators can compete within an open market platform. Government initiatives have been essential in driving investments in renewable energy, enabling this transition to occur.

Mining companies operating in South Africa are at the forefront of the shift towards greener energy alternatives. At present, around 15,800MW of renewable energy initiatives are underway in the mining industry. These initiatives help mining companies’ lower expenses while ensuring energy reliability and supporting their goals for reducing carbon emissions. Despite potential challenges, the shift towards renewable energy represents a vital move towards a more sustainable economy.

In 2022, Standard Bank set a goal to mobilize R250 billion for sustainable finance by 2026. The bank has recently updated its group sustainable finance targets, aiming to mobilise over R450 billion by 2028. This bold goal exceeds the R177 billion already secured since 2022, with R50.5 billion dispatched in 2024 and just over R70 billion anticipated in 2025. A significant amount of this funding has been designated for supporting renewable energy initiatives within the mining sector. SBG is committed to a just transition, ensuring energy security while supporting decarbonization efforts.

We match our words with action in driving Africa’s sustainable growth. In the coming years ahead, we look forward to continuing to collaborate with likeminded partners who share our vision for this continent we proudly call home.

https://corporateandinvestment.standardbank.com/cib/global/insights/transitioning-to-a-more-sustainable-economy?cid=SM_7HPc2